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Singapore Technologies Engineering Ltd’s Latest Earnings: 8 Quick Things For Investors To Learn From Management

Singapore Technologies Engineering Ltd (SGX:S63) is one of the cool companies in Singapore’s stock market that shares webcasts and/or transcripts of their earnings presentations.

Back in early November 2016, the company, known as ST Engineering for short, released its 2016 third quarter earnings. I had recently spent time going through the webcast of the company’s earnings presentation and noted down eight useful pieces of information for investors.

As a quick background, ST Engineering is an engineering conglomerate. Its major business segments include Aerospace, Electronics, Land Systems, and Marine. These segments are in a variety of sectors such as defense, information communication technologies (ICT), and global maintenance, repair and overhaul (MRO).

With that, here are my notes:

  1. David Choo, ST Engineering’s Group Financial Controller, kicked off the meeting with an overview of the company’s results. The tagline to ST Engineering’s quarter was candid – “lower profits.” ST Engineering reported 8% growth in revenue, but a 42% drop in profit.
  2. The decline in ST Engineering’s bottom-line was largely due to a $61.1 million impairment charge for Jiangsu Huatong Kinetics and Jiangsu Huaran Kinetics. The two entities are collectively known as JHK. The charge was announced in mid-October 2016. Without the one-off charge, ST Engineering’s net profit would have been up 3% instead.
  3. Moving on to the various segments, Choo said that there was growth across the board. The Aerospace and Electronics segments saw 11% and 9% year-on-year increases in revenue, respectively. Meanwhile, Land Systems’ revenue grew 5% while Marine revenue climbed by 3%.
  4. If we break out ST Engineering’s revenue by the location of its customers, Asia comes out tops with $988 million. This represents 61% of ST Engineering’s 2016 third quarter revenue. US took up second place with 25% of the company’s top-line. Choo highlighted the increase in Europe’s contribution, which moved to $133 million, or 8% of the overall pie. This was due to the consolidation of the new Elbe Flugzeugwerke GmbH (EFW) subsidiary.
  5. ST Engineering also recorded earnings before interest and taxes (EBIT) that was 32% lower. Without the JHK charge, EBIT would have been 22% higher. Choo said that the Marine segment showed strong performance with a 238% increase in EBIT on the back of better margins.
  6. Choo also covered ST Engineering’s profit before tax (PBT) margin. The company’s overall PBT margin was just 7% due to the JHK charge. Without the JHK charge, the PBT margin would have been 11%. The Marine segment achieved an 18% PBT margin, the best among the four.
  7. Choo said that ST Engineering had net assets of $2.24 billion, largely comparable to 2015. ST Engineering had to write down some property, plant and equipment due to the JHK impairment.
  8. Overall, ST Engineering expects its 2016 revenue to be higher, but PBT to be lower, when compared to 2015. Management expects the Aerospace segment to record higher revenue, but comparable PBT. Electronics is expected to post higher revenue and PBT. Elsewhere, ST Engineering expects lower revenue and PBT at both the Marine and Land Systems segments.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.